The South Florida Middle Class Exodus
He was known as “Gator” on a local country station, but these days, Kevin Kilpatrick is living in the land of catfish and grits rather than gators and bagels, having moved to Tennessee from Plantation, Fla.
“I just wanted to get away from the congestion, the idiots driving. And we won’t have to worry about hurricanes anymore,” he told the Miami Herald.
Kilpatrick, 37, had a good life in South Florida, but a new career as an independent voice artist meant he was free to relocate, which he did last November. The home price differences made the decision a no-brainer. In Broward County, where he was renting a house, the median price is $377,000. In southern Tennessee, about an hour from Nashville, he has 10 acres and a 4,000-square-foot home built two years ago. For $280,000.
“We just felt we could have a better quality of life by moving,” he said.
There are always people moving in and out of South Florida, which continues to grow overall.
But in the last year — a trend too recent to appear on radars like U.S. Census data — area experts are seeing powerful anecdotal evidence of an outbound migration trend.
Indeed, 25 years after Time magazine’s infamous “Paradise Lost” cover story, South Florida is once again losing its allure. Only this time, it isn’t crime that’s to blame.
The trouble in paradise is the quality of life — everything from grinding traffic to costly real estate and gale-force increases in property insurance premiums. It’s prodding growing numbers of people in their prime earning years to conclude — correctly — that the smartest economic decision they can make is to leave South Florida.
THE GREAT MIDDLE-CLASS DECLINE
Lisa Kirkham, who recently left Cutler Ridge, Fla., for Maryland, is a typical example. There are days when it took her two hours to go 20 miles to work at a cargo airline, and all the while, her Florida mortgage payments kept rising because of windstorm insurance.
“I don’t know how people can afford it,” she said.
A recent study by the Brookings Institution found that apparently, many can’t. Middle-income neighborhoods, as a proportion of all metropolitan neighborhoods, have been declining nationally, hitting 41 percent, down from 58 percent in 1970.
The study found that greater Miami boasts the nation’s fifth-lowest proportion of middle-income households, barely beating out perennial losers New York City and Los Angeles. Broward fared nearly as badly, ranking 82nd. Palm Beach County placed 80th.
The study was based on 2000 Census data, and in all likelihood, the problem has worsened in the interim. One indication of middle-class discontent is declining public school enrollment, which has been observed in Miami-Dade since 2002, and in Broward last year for the first time in more than two decades.
To be sure, the South Florida housing market remains immensely appealing for a bevy of reasons. Some professionals think the problem may be overestimated.
“I personally don’t know anyone who has left,” said John Beauchamp, a Vice President in Fort Lauderdale’s Intercoastal Realty.
Beauchamp does think high real estate taxes are a growing issue, but of home prices, he isn’t sure the issue at stake isn’t overblown.
“I’m a positive person, and my answer is, there’s a price to paradise,” he said.
MOVING UP, GETTING OUT
Economists and planners worry that the high price could render South Florida a stratified community, where the rich live well, the poor get by, and the middle class… well, they get out.
“From a policy perspective, we need to revisit the norm… Things have changed, the dynamics have changed, from when our norms were established,” said Jim Tarlton, head of the Broward Alliance, an economic development agency.
The South Florida norm has always been to “pay in sunshine.” Translation: The area depended on low-wage service jobs, on the theory that there would always be arrivals who would work cheap for the weather. With the current economic outlook here in 2006, that’s not necessarily possible.
Also, the Save Our Homes initiative of a few years ago tied local taxes to a home’s purchase price, and caps the increases forever after. That has unintentionally resulted in a situation where someone looking to move would pay such a high tax bill on a new home that it may make more sense to leave South Florida altogether.
On a $500,000 house, for instance, property taxes can easily surpass $12,000 a year — or $230 a week.
“The fact that people can’t move from one house to another because of the way property taxes are structured will impact us. It impacts the workforce directly, and without that workforce, it makes it very hard for companies to keep their cost structures down,” Tarlton said.
AN ANGRY KIND OF PLACE
That’s what many are calling this supposed paradise nowadays.
“I find it to be an angry place. We went to Amelia Island last year, and everyone was so nice,” said Adele Paul, a Coconut Grove optometrist, who operates a practice with her optician husband, David Fitzgerald.
In search of affordable housing, the couple is selling its home and building a house in Fernandina Beach instead. Paul’s situation illustrates why powerful economic forces are prying loose South Florida’s middle class.
- First, there are thousands of households with formidable amounts of equity. Paul and her husband could have roughly $500,000 in profit from their home, even after accounting for renovations.
- Second, there is the aforementioned property tax jump if you move.
- Third, even those fortunate to have an affordable Florida home loan at a fixed rate are being pummeled by a rapidly rising cost of living. Wind insurance is one example — in Paul’s case, the tiny building where she practices optometry has been assessed at more than $1 million, up from $345,000 just a few years prior.
“We were $8,000 short on our escrow account, and if you’re running a small business, that’s a lot of money. I can’t just charge higher fees because insurance and government reimbursements are fixed,” Paul said.
Moving to less-crowded, less-expensive Nassau County not only provided the couple with a chance at affordable North Florida real estate, but other, unintended economic dividends.
“Malpractice insurance is two-thirds what it is here, and car insurance goes way down,” she said.
A few key statistics show how quickly, and powerfully, the economic winds have shifted in South Florida.
- In 2001, the Florida Association of Realtors estimated that the median South Florida home cost $158,000. That was about 7 percent more than the national median.
- With 10 percent down, that would have meant a monthly payment of $898.80 for principal and interest at prevailing Florida mortgage loan rates then.
- Today’s median home price of $378,000 locally is 73 percent above the U.S. average. It also means that principal and interest total $2,150 monthly.
- That’s after a 10 percent down payment — or $37,800.
“The hardest thing for them is coming up with a down payment,” said Kimberly August, a Florida mortgage planner with RegionsBank.
August noted that monthly mortgage payments are already on the rise for households with adjustable-rate Florida home loans. But even families with fixed-rate home loans are finding their housing costs soaring because of skyrocketing insurance premiums, which have nearly doubled in the last several years and will nearly double again if proposed rate increases are approved.
WILL HOME PRICES FALL?
At least in theory, inflation in housing costs can’t outpace income growth forever.
The reality, however, suggests it can, absent a disaster. In its recent survey of the U.S. housing market, the Joint Center for Housing Studies at Harvard University said the imbalances in affordability don’t self-correct very quickly. And the solutions are often worse than the problem.
“In most cases, it takes significant job losses — or a combination of overbuilding, modest job losses and population outflow — to drive house prices down substantially,” the Harvard study concluded.
CONDO SALES PLUMMETING
Although there is growing evidence of overbuilding in condos, it isn’t clear whether that is the answer to the housing affordability problem. In fact, even as the new buildings soar, sales of existing condos were down more than 30 percent in June in both Miami-Dade and Broward.
The other factors that may cool off housing prices are non-issues for the region. The labor market is drum-tight, for instance, and the population continues to grow with influxes from Latin America and the handful of U.S. cities, such as Boston and New York, that still make South Florida look like a bargain.
Those who stay often find that the home equity windfall doesn’t actually produce a higher living standard.
COMMON COMPROMISES
Florida mortgage loan rates have declined for three weeks straight, but that hasn’t meant much relief for the area’s cash-starved residents. Not will it anytime soon, experts say.
John Bryan Page, Chair of the Anthropology Department at the University of Miami, said that with no end in sight, a dearth of compromises are being made by millions of residents trying to cope with stratospheric housing costs.
“To look at what kinds of adaptations take place, you need to look at places like San Francisco and New York City where people have been living [in over-priced markets] for a long time,” he said.
They have roommates or put another generation under the roof. Kids live at home, commutes grow longer, traffic gets worse. People are opting for living down in Homestead and places they can afford. Even if it makes the commute so long that they go insane.
After a matter of time, though, do they stay? Or will they drive off, into the sunset, never to be seen again?
